How Is NAV Calculated?

Net Asset Value (NAV) is an important concept in the mutual fund industry. It represents the per-unit value of a mutual fund and the price at which investors buy or sell each unit in a mutual fund. 

NAV is updated at the end of each day. NAV is crucial as it helps track the performance of a mutual fund. Investors can assess how well the fund has performed by comparing the  over different periods. Regular calculation and publication of NAV provide transparency to investors regarding the value of their investments. 

To calculate NAV, you need to subtract the fund's liabilities from its total asset value and divide it by the total outstanding units of the fund.

Net Value of an Asset = (Total Asset – Total Liabilities) / Total Outstanding units of the fund

Let's use an illustration to understand better how NAV is calculated. 

Let’s say there is a mutual fund with the following details:- 

• Market value of the securities in the portfolio: 50 Crores.

• Cash: 5 Crores.

• Total liabilities: 6 Crores.

• Total number of outstanding units: 10 Lakhs.

Now, let us calculate the NAV using the formula: 

Net Value of an Asset = (Total Asset* – Total Liabilities) / Total Outstanding units of the fund 

= (50,00,00,000+5,00,00,000−6,00,00,000)/ 10,00,000 

= 490 

*Total Assets = Market value of the securities plus Cash (50,00,00,000+5,00,00,000) 

Interpretation

The NAV of the mutual fund is ₹490. This means each unit of the mutual fund is valued at ₹490. 

In India, NAV is calculated at the end of each day. The value reflects the closing prices of the securities in the fund’s portfolio. The calculation and disclosure of NAV are regulated by the Securities and Exchange Board of India (SEBI) to ensure transparency and protect investors' interests.